This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.

Budget Passes House

U.S. House of Representatives passes first bipartisan federal budget in four years. Senate to vote next week.

The House of Representatives passed the first bipartisan U.S. budget in four years yesterday, clearing the way for final Senate passage next week to ease $63 billion in spending cuts and avert another government shutdown.

That doesn’t mean lawmakers are excited about it.

The 332-94 vote in the House, where almost equal numbers of Republicans and Democrats voted for the plan, masked deep reluctance about the $1.01 trillion budget accord.

“This agreement is better than the alternative, but it misses a huge opportunity to do what the American people expect us to do, and that is to put this country on a fiscally sustainable path,” said Representative Steny Hoyer of Maryland, the No. 2 House Democrat.

The budget deal keeps in place about half of the automatic spending reductions known as sequestration in 2014, and about three-quarters of the planned cuts in 2015.

Neither party likes the cuts, which in January are slated to affect the Pentagon as well as domestic programs favored by Democrats. Neither party could find a way to erase them all in this budget compromise.

The Senate will begin considering the budget deal on Dec. 17 with a final vote later in the week, Majority Leader Harry Reid, a Nevada Democrat, said today in a floor speech.

House Speaker John Boehner summed up the better-than-nothing opinion of many in Congress by saying simply, “It’s progress.”

“It’s doing what the American people expect us to do,” which is to “stick to our principles but find common ground,” Boehner, an Ohio Republican, said in a speech before the vote.

The compromise budget was crafted by Senator Patty Murray and Representative Paul Ryan, the chairman of a special bipartisan panel. President Barack Obama said he’ll sign the final measure.

The agreement’s main accomplishments are to relieve $40 billion in cuts in 2014 and about $20 billion in 2015 and cushion the military from a $19 billion reduction starting next month. The measure includes $23 billion in deficit reduction.

It doesn’t raise the U.S. debt ceiling, setting up a potential fiscal showdown after borrowing authority lapses as soon as February.

“It doesn’t go as far as I’d like, but it’s a firm step in the right direction,” Ryan, a Wisconsin Republican, said in a statement after the vote.

Spared Doctors

The accord also spared doctors for three months from cuts in the Medicare payment rates set to start in January. The measure doesn’t extend emergency benefits for 1.3 million unemployed workers, an omission that frustrated Democrats, who say they plan to continue the fight when Congress returns in January from a holiday break.

Hoyer was among 32 Democrats, including Representatives John Conyers and Carl Levin of Michigan, Louise Slaughter of New York, and Peter DeFazio of Oregon, who voted against the budget measure.

The budget was opposed by 62 House Republicans, a quarter of the caucus, including Representatives Michele Bachmann of Minnesota, Michael Burgess of Texas, Mick Mulvaney of South Carolina, Steve King of Iowa, and Tim Huelskamp of Kansas.

Lawmakers and some economists said adopting a formal budget will provide some certainty to the U.S. economy after three years of spending feuds that led to a government shutdown, rattled investors, and prompted a downgrade in the nation’s credit rating.

Beth Ann Bovino, chief U.S. economist for Standard & Poor’s Corp., said in a recent newsletter that adoption of a bipartisan budget will be a boon to the U.S. economy.

“The budget would reduce a key risk, political uncertainty,” she wrote. “The private sector will probably be more confident when planning investment and spending for next year, which would directly boost growth.”

No Grand Bargain

The deal is far from the $1 trillion to $4 trillion grand bargain on taxes and spending that previous budget negotiators sought. The plan would set U.S. spending at about $1.01 trillion for this fiscal year, higher than the $967 billion required in a 2011 budget plan.

Much of the deficit reduction will come in later years, according to an analysis by the nonpartisan Congressional Budget Office. The plan would lower the deficit by $3.1 billion in 2014 and $3.4 billion in 2015 and exceed $20 billion a year in 2022 and 2023, the CBO said.

A big portion of the savings is tied to extending the cuts in Medicare provider payments into 2022 and 2023, rather than letting them expire in 2021 as under current law.

The accord may help lawmakers repair their image after a 16-day government shutdown in October that caused congressional approval ratings to fall to the lowest level recorded by the Gallup Organization polling group.

It also may give lawmakers breathing room to debate other initiatives that have been sidelined as Congress moved from one stopgap spending bill and fiscal crisis to the next.

Some Republicans opposed to the deal say it trades scheduled spending cuts for future promises of austerity that may never materialize and includes tax increases that masquerade as user fees.

Vote Scorecards

Heritage Action for America, a group affiliated with the Heritage Foundation that backs limited government, said it will include the budget vote in its scorecard ranking the records of members when they seek re-election.

South Carolina Republican Mick Mulvaney said the legislation “trades spending increases now for promised reductions in the future.” Mulvaney, who organized a letter to Boehner calling for a bill retaining the cuts, said “past promised spending reductions just never seem to pan out.”

Whether yesterday’s show of bipartisanship could lead to cooperation on a broader tax-and-spending agreement or is a limited compromise of convenience has yet to be determined.

“The big test of that will be when we get to the debt ceiling, whether or not House Republicans again threaten not to pay the bills that are due and owing, and try and use that moment to extract, you know, concessions on their political agenda,” Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend.

A 2011 budget plan that raised the debt ceiling established the cuts as a hammer—with the threat of equal pain to domestic and defense programs—to force congressional negotiators to reach a deal on taxes and entitlement spending. After they failed, Congress allowed the first wave of cuts to primarily affect domestic programs starting last March.

The alternative to a bipartisan deal was for Congress to let $109 billion in scheduled across-the-board spending cuts pinch programs, including scientific and medical research.

The Pentagon had warned that that an additional $19 billion in cuts starting in January could compromise national security.

There are signs that lawmakers remain frustrated by divides. Boehner, an Ohio Republican, lashed out at some groups that typically ally with Republicans for criticizing the deal and urging lawmakers to vote against it.

“They are misleading their followers,” Boehner said yesterday at a Capitol Hill news conference. “They are pushing our members in places they don’t want to be. And frankly, I just think they’ve lost all credibility.”

Federal Pensions

The main components of the deal include raising contributions that new federal employees make to their retirement plans and increasing premiums for pensions backed by the Pension Benefit Guaranty Corp.

One of the largest areas of savings in the next 10 years comes from an increase in aviation security fees, which would reduce the deficit by more than $12 billion.

The deal includes reduced cost-of-living increases for working-age military retirees.

The budget plan also tightens eligibility criteria for and overpayments in programs including unemployment insurance, Medicaid, and benefits for federal prisoners.

It eliminates a 2005 natural gas and petroleum resources research program and caps income paid to federal contractors.

Treasury & Risk

Treasury & Risk is an online publication and robust website designed to meet the information needs of finance, treasury, and risk management professionals. Our editorial content, delivered through multiple interactive channels, mixes strategic insights from thought leaders with in-depth analysis of best practices, original research projects, and case studies with corporate innovators.